ATLANTA – The practice of pledging car title to make ends meet could become a bit more restrictive in Georgia under a bipartisan bill introduced in the 2020 legislative session.

By using a person’s vehicle as collateral, auto title loans quickly provide small amounts of money to cash-strapped borrowers without the need for a credit check. The loans, which can carry high interest rates in the triple digits, can cost borrowers their vehicles plus the balance of any outstanding debt in the event of default.

For developers, loans allow people to stay afloat financially in times of hardship.

These borrowers may not be eligible for other types of loans offered by lending institutions such as banks or credit unions, depending on the title lenders. High interest rates help offset the risk of lending to less financially stable borrowers, they say.

But critics argue that the practice helps trap the state’s most vulnerable populations in a cycle of indebtedness, especially for low-income and black communities. Consumer groups have long called for more legal safeguards on securities lending to curb so-called “predatory lending” techniques.

Senate Bill 329 would cap interest rates at 36% per annum for auto title loans in Georgia, closer to how other small loans are regulated. It would also set stricter refinancing terms and set limits on the amount of money a lender could raise in the event of default.

Bill’s sponsor Senator Randy Robertson said he was inspired by a Columbus voter whose elderly father pledged his car title to pay his utility bills and then fell into a hole because of the increasing monthly payments of the loan’s 166% interest rate. .

Robertson, R-Cataula, said he modeled the 37% interest rate cap legislation that the

The US Department of Defense made approved loans to the military in 2006.

“I don’t want to kill business and I certainly don’t want to close a path that a segment of the population might need to fend for,” said Robertson. “What I want to do is align this path with the closest thing.”

Senator Chuck Hufstetler, Republican Chairman of the Senate Finance Committee, is co-sponsor of the bill along with three fellow Democrats: Senator Zahra Karinshak, Ed Harbison and Sheikh Rahman.

The bill would also move regulation of small consumer loans from the State Department of Insurance to the State Department of Banking and Finance. Governor Brian Kemp has already figured this out is in the state budget for fiscal year 2021.

Predatory loans or loans of last resort?

Small consumer loans are regulated to varying degrees in Georgia depending on the size and type of loan, but none can carry interest rates greater than about 60% per annum below the usury cap. State.

This does not cover loans involving car titles, which state law considers pledged items. Pawn shops are subject to interest rates of 25% per month for the first 90 days, then 12.5% ​​per month every 30 days thereafter.

Consumer protection advocates see the pawn designation as a loophole that has caused auto title lending to swell in Georgia. The Georgia Watch nonprofit estimated that 755 securities lending companies were open in Georgia in 2018 and raised nearly $ 200 million in interest.

Georgia Watch executive director Liz Coyle said these companies often prey on struggling borrowers desperate for cash and willing to pay off high-interest loans for years to avoid losing their cars.

“Earning your car title isn’t the same as pledging your grandfather’s watch,” Coyle said. “It’s a debt trap.”

Robert Reich, president and CEO of Atlanta-based loan company Community Loans of America, disagreed with this qualification. In a statement, he said the high interest rates reflected the risky nature of these loans and argued that they should be regulated by local county and city rules, not the state.

“These are high risk financial transactions and we look forward to working with the author to learn more about our industry in the hopes of providing non-bank clients with options that would not otherwise exist,” said Reich.

A better approach, Reich said, would be to go with the regulations proposed in legislation introduced in 2017 by Representative Brett Harrell, R-Snellville, which would limit loan terms but keep largely the same interest rates. Georgia Watch called the measure not tough enough. He stalled in the State House.

For his part, Robertson has pitched his bill as a way to limit small loans that could help alleviate “generational poverty” that can lead people to commit crimes.

Robertson, a retired Muscogee County Sheriff’s Office major, said many Georgians who end up in jail have been raised in families who have had to use ‘quick-type companies’ to make ends meet. .

“It empties jails and jails,” Robertson said of his bill. “We have to stop the behavior that causes them to be incarcerated, and I think the reliance on predatory loans is part of that behavior.”

Story Beau Evans, Editor-in-Chief – Capitol Beat Press Service